If you've been following recent headlines about alternative currencies, you probably find them ... villainous. Last month, a Manhattan jury found Ross Ulbricht, otherwise known by the pseudonym “Dread Pirate Roberts,” guilty on seven counts, including narcotics distribution, identity fraud, and money laundering. Ulbricht also faces charges in Maryland regarding murder for hire.

Ulbricht committed his crimes while operating Silk Road, a massive online drugs marketplace. The website, hidden by the anonymity software Tor, allowed anyone to purchase not only drugs, but weapons and counterfeiting services via the cryptocurrency and payments system known as Bitcoin.

Most alternative currency projects are not indexed to murder and mayhem.

Federal prosecutors didn’t have anything positive to say about Bitcoin or cryptocurrencies more generally. Understandable. Cryptocurrencies—so named because they use encryption to secure transactions and circulate units—have served a central role in digital black markets.

But the world of alternative currencies—those not issued by nation-states—is much deeper and broader than cryptocurrencies or Bitcoin, and it is not limited to unsavory activity. Indeed, people around the world have long used alternative currencies to empower their communities in the face of austerity and financial crisis. They are now being established in gritty South London, Kenyan slums, and Native American reservations. How do they help?

Money, credit, and currency

To understand the how and why of alternative currencies, it is helpful to know the history of money and the history of credit more generally. Today, most purchasing power—the ability to buy goods and services—is created by governments issuing money and licensed banks making loans. Yet long before the time of modern money, credit existed in the form of people exchanging IOUs without governments and banks acting as middlemen.

Growth in the use of alternative currencies might pressure governments and banks to be better financial stewards.

At the end of the day, for better or worse, most money circulation in the present is backed by guns, courts, and jails. By contrast, Fullwiler sees alternative currencies as representing a “horizontal approach,” in which groups within the public generate, expand, and contract purchasing power. The cooperation required to make a horizontal system work can be facilitated by cryptography, as in the case of Bitcoin, or it can be generated by custom, law, or simply a high level of mutual trust.

With this distinction in mind, it's easy to see how alternative currencies, especially cryptocurrencies, are attractive to people seeking to avoid or subvert governments. Ross Ulbricht, like many other Bitcoin enthusiasts, is a self-described libertarian and fan of the right-wing Austrian School of Economics, as detailed on page 26 of the criminal complaint against him. Silk Road was, if nothing else, a paragon of deregulation. A cryptocurrency like Bitcoin is an intuitive part of the network.

Yet dread pirates are not the only people who benefit from financial privacy or access to new sources of funding. Many low-income people struggle to access credit, and in an increasingly surveilled digital world, they are often treated unjustly when doing so. Interacting with most financial services providers means interacting with Big Data in one way or another, which can have harmful consequences. Just last month, the Federal Trade Commission (FTC) sued a data broker for allegedly selling payday loan applications to marketers, ad agencies, and far more nefarious clients. These loan applications, which included bank account information, Social Security numbers, credit card history, and other forms of personal financial data, belonged mostly to low-income people. The worst part is, the lawsuit offers only a glimpse into thedark side of financial surveillance.

The world of alternative currencies has been portrayed by the media as a sinister realm, defined by privileged access to complex technology for concentrating wealth. But such a picture is incomplete.

It is true that Bitcoin has done little to promote economic justice in any authentically democratic sense. But other currencies have been established for those who either don’t have enough traditional money, can't access enough, or don't want to ask for a loan because of privacy or security reasons.

Most importantly, alternative currencies can and are helping communities that have the physical resources for economic activity, yet lack money to facilitate the exchange of goods and services. At the very least, growth in the use of alternative currencies, as competitive or relatively unmonitored economic activity, might pressure governments and banks to be better financial stewards and provide for the basic needs of the public.

Brixton's own colorful currency. Photo courtesy of Brixton pound.

Local loyalty: The Brixton Pound

“When people think of Brixton, too many think of gangs, drugs, and riots. We’re trying to turn that notion on its head.” That’s what Tom Shakhli, the general manager of the Brixton Pound, told me when I visited the team office at Lambeth Town Hall. A storied district in the middle of South London, Brixton is indeed an atypical home for a thriving local currency. As Tom notes, other local currencies in the U.K. are succeeding in suburban neighborhoods full of “hippies.” By contrast, the 5-year-old Brixton Pound is humming in one of the U.K.’s most diverse and dynamic neighborhoods, the heart of Black Britain, heavily hit by the recession.

Unlike Bitcoin, the Brixton Pound is a “complementary currency”: It’s not meant to subvert the national currency nor dethrone pounds sterling. Indeed, the Brixton Pound is officially both pegged and backed by pounds sterling at a 1:1 ratio. There is no issuer, per se. Rather, residents can exchange £ for B£ at various shops and public places across the neighborhood. Because the Brixton Pound organization isn't making loans, the U.K. Financial Conduct Authority treats the currency as a “voucher scheme,” and thus the team avoids entanglement in the legal morass that plagues small lenders and other financial services providers.

Forty percent of local businesses now accept the Brixton pound. Photo courtesy of Brixton pound.

At this stage, the goal of the Brixton Pound isn't credit or value creation. So why use it? When the Brixton Pound launched, one economist accused the project of “not achieving anything meaningful” and interfering with already-existing existing incentives to buy cheap goods from outside Brixton.Admittedly, the main reason to use the Brixton Pound is precisely because it empowers local businesses and traders in the neighborhood, 40 percent of which now accept the currency, Shakhli told me. Since you can only spend Brixton Pounds in Brixton, the currency stays around, at least until it is exchanged, maintaining the vibrancy of the neighborhood's world-famous markets and entrepreneurs.

Some government employees receive portions of their salaries in electronic Brixton Pounds.

“We don’t want to be part of Clonetown Britain,” Shakhli and his team of employees and volunteers are fond of saying. That is, they don’t want people to get off the Underground and run into the same fast-food joints and convenience stores that pop up in most other London neighborhoods. This is clearly a sentiment shared by many local businesses. In fact, many of them now offer discounts simply for using B£ instead of £. In return, they receive free advertising from the Brixton Pound organization, in addition to other benefits.

One of those perks is that it’s incredibly convenient. In 2011, the Brixton Pound followed the model of several services in sub-Saharan Africa by adopting pay-by-text—Shakhli estimates that 95 percent of transactions now occur with e-currency via SMS. The businesses pay lower transaction fees for this service than they normally do to debit card and credit card providers. The fees are then collected and pooled in a micro-grant scheme—money that will soon be reinvested in the community.

Without a doubt, the paper version of the Brixton Pound looks amazing: With pictures of locals like black feminist activist Olive Morris, the Miami Heat’s Luol Deng, and David Bowie, it’s the coolest currency I’ve ever seen. But texting is as easy as using a credit card, with lower fees, so many people go for the digital option.

As for security and privacy, the Brixton Pound stacks up fairly well. The paper currency contains similar security features to pounds sterling, which help prevent counterfeiting. Furthermore, when you exchange sterling for Brixton Pounds, the sterling goes into a local credit union, which is not only far more likely to lend to small businesses than a conventional bank, but succeeds at the expense of predatory and invasive payday lenders, which are becoming increasingly ubiquitous in low-income London. On a macro level, as the link between the Brixton Pound and the local credit union is strengthened, it is less likely that the pounds of Brixton residents will be subject to the hazards and punishment that come from dealing with unseemly lenders.

At this stage, the Brixton Pound is working for local economic empowerment. Shakhli says the currency succeeds because it is easily understood. The local government also supports it—indeed, some government employees receive portions of their salaries in electronic Brixton Pounds, and some business pay local taxes with them.

The future of the Brixton Pound may become more complicated: they plan to get their first ATM soon, thus stepping further into the realm of more traditional financial services providers. But, for now at least, Shakhli can confidently say that the Brixton Pound is both helping the neighborhood and encouraging people to reflect on crucial modern questions: “What is money, anyway? Where does it come from?”

Mombasa, Kenya. Photo courtesy of Bangla-Pesa.

Creating credit: Koru Kenya

Shakhli’s questions have long revolved in the mind of Will Ruddick, an American physicist who began his career studying high-energy particles but now works for Koru Kenya, a community-development organization headquartered in Mombasa.

Some officials hope the currencies will provide a platform to finally tax the “informal sector.”

Like the Brixton Pound team, Koru Kenya builds currencies that complement sovereign ones (although the organization now runs several “community currencies” in different locations across the country). Yet the scenarios could not be more different. Brixton is an admittedly hard neighborhood in a massive metro, but in the slums and villages where Ruddick and his Kenyan colleagues work, needs are more basic. As Ruddick put it when I spoke to him, people in Mombasa are not “struggling” in the same sense that they are in U.K. or the U.S.: “People here are starving."

Accordingly, Koru Kenya’s currencies do something the Brixton Pound does not: They create credit where there is not enough. Interest free. When Ruddick arrived in Kenya from the United States five years ago, his co-founders introduced him to a world of both waste and opportunity. There were people who could work but weren’t participating in the local economy. There were plenty of goods, but they couldn’t be bought or sold. All for lack of particular pieces of paper and metal.

“If I have forks and you have spoons but we can’t engage in trade just because we don’t have money, I consider this is a human rights violation,” Ruddick asserts.

That may sound intense to some readers, but this is what happens when a nation’s currency doesn’t reach all of its people: The public is separated from its own potential for physical abundance by mere lack of legal tender. Ruddick’s training as a physicist leads him to compartmentalize systems, and accordingly he sees lack of credit as a glaring yet solvable inefficiency in the economic machine: “When you turn one knob, the monetary system, everything changes.”

Ruddick envisions a network of interlocking local currencies contributing to a more distributed banking system.

Ruddick and his colleagues began turning knobs by issuing a new community currency, the Eco-Pesa, into three villages in the Kongowea Location on Mombasa’s north coast. Businesses agreed to trade with the paper currency, and community members could earn extra by taking part in monthly service projects. Every month, people could exchange the vouchers for Kenyan shillings with the Green World Campaign, an anti-poverty environmentalist group.

In 2012, the Koru Kenya team took the concept one step further and issued the Bangla-Pesa in Bangladesh, one of Mombasa’s worst slums. Residents adopted the currency quickly, with many local business groups agreeing to become issuers, handing out the paper from community centers, health clinics, and schools. The network expanded based on trust: All you need to receive Bangla-Pesa free of charge is four guarantors within the network will who vouch for you. Part of your grant is placed in an actual network trust, which is used for administration, marketing, and community programs such as health care for elderly. Then you’re on your way.

In May 2013, the Bangla-Pesa went official. About 200 participating businesses, 75 percent of them owned by women, received currency grants. The organization’s definition of a “business” is expansive: An individual teacher, sex worker, nurse, or farmer can qualify. This inclusivity has repeatedly borne results. Since the launch, Ruddick estimates that total sales in the neighborhood of 8,000 have risen by 20 percent. Considering the financial paralysis of Bangladesh beforehand, this growth is tremendous. Still, some academics and analysts are cautious. The Brookings Institution, for example, wonders if the Bangla-Pesa might weaken linkages to the national economy or drive out “good money.”

For the most part, the national government and the banks haven’t stood in the way of Koru Kenya's success ... except for one small hiccup. On May 29 of 2013, Ruddick and some of his associates were locked in federal prison. Terrorism had struck, and Ruddick was lumped in with a secessionist movement in the resulting national security sweep. He and his associates had to make the case that the Bangla-Pesa was not meant to subvert the state nor destroy the Kenyan shilling. Indeed, the community currency is what Post-Keynesian and Institutionalist economists often refer to as an “automatic stabilizer”: When people can't get enough shillings, they use Bangla-Pesa, but when the national economy is roaring, they inevitably switch back to using shillings.

Local outreach groups spread the word about the alternative currency. Photo courtesy of Bangla-Pesa.

Ruddick is adamant that, for now at least, Koru Kenya’s currencies will continue to be pegged to the shilling at a 1:1 ratio. Supporting the strength of this case, hundreds of academics from the community currency movement, friends, and eventually the Kenyan attorney general rallied behind Ruddick and his associates. They were released within a few days and charges were finally dropped in August.

Now, Koru Kenya enjoys more support than ever, and faces few of the regulatory hurdles that often stifle local currency projects in the North Atlantic. Ruddick will soon become a Kenyan citizen like his wife and daughter, and the organization is sharing its experience in implementing community currency programs across the continent, with a specific focus on gender equality and women's empowerment. The group will soon rebrand as Grassroots Economics, signifying their growth into a full-fledged international foundation. Eventually they'll go digital, with the localized nature of each currency serving as a buffer against fraud and speculation.

Perhaps more importantly, Ruddick has already talked with other African governments about supporting local currencies. Some officials hope that these currencies will provide a platform to finally tax the “informal sector” (Ruddick estimates anywhere from 50 percent to 80 percent of people living in Africa don't pay taxes at all). If the local currencies indeed become accepted for national tax purposes, currencies like the Bangla-Pesa will begin to blur the aforementioned line between simple “credit” and state-sponsored “money.”

Ruddick welcomes that prospect. He envisions a network of interlocking local currencies contributing to a more distributed banking system and a more democratic monetary system.

“Money is what we make it. We should be asking, ‘What is real value?’” he says. The implications of the vision are enormous: “People won’t have to go into debt to the IMF or microfinance if they can just create their own community currencies.”

Demanding dignity: Mazacoin

On the Pine Ridge Indian Reservation on the South Dakota-Nebraska border, a small team of developers has been attempting to achieve not only economic growth, but economic self-determination—via the Internet. It’s a plan created out of a desperate situation. According to Oglala Sioux Lakota Housing Director Jim Berg, about 40,000 members of the tribe live on the reservation; 80 percent are unemployed and 49 percent live below the poverty line. Furthermore, the tribe has felt the wrath of austerity, facing million-dollar budget cuts from the U.S. federal government, which will worsen housing, education, and health services. It seems that if anyone could benefit from financial innovation in the painful absence of the U.S. dollar, it would be the people of Pine Ridge.

Fortunately, the Fort Laramie Treaty of 1868 with the U.S. federal government says nothing about the tribe relinquishing its right to maintain a currency. The Oglala Sioux can thus attempt to go beyond a complementary currency—like the ones in Brixton and Mombasa—and create a limited sovereign currency, to eventually substitute for the dollar.

It’s easier said than done.

When Payu Harris, himself of Cheyenne-Lakota heritage, started Mazacoin a year ago, it was marketed as a cure-all. At the peak of popularity, Harris toldForbes magazine that the cryptocurrency could become the “new buffalo,” the foundation of a new economy. Within weeks, Mazacoin was all over the financial press. Although perhaps well-intentioned, the media attention backfired. Investors on online coin exchanges flocked at first, and then left when it became apparent that the currency didn't have quite the backing from the tribal government that some thought it did. As a result, some cryptocurrency investors considered—and still consider—Mazacoin to be a scam. From the perspective of the team that’s building the currency, however, things have cooled down, and they are preparing for a slower, less precarious hike.

Harris has indicated that he is working closely and productively with tribal officials.

Some of the volatility is to be expected. Operationally, Mazacoin works very differently from the Brixton Pound or the Bangla-Pesa. It is neither backed by the U.S. dollar nor pegged to it. There is no central issuer. Instead, Mazacoin is based on the software behind Bitcoin. Even though it is ostensibly used for different purposes, the currencies bear many technical similarities. As the website states, “at its core, Mazacoin is a software program that anyone can run on their PC or Android device, and some rules for computers to communicate.”

People send Mazacoins to each other’s (often encrypted) electronic “wallets.” To do so, all you need to know is the recipient’s address, unlimited numbers of which are generated freely with the click of a button. The addresses aren’t available unless they are shared by the recipient, and users are encouraged to use a new address each time they want to receive Mazacoins. This process purportedly maintains privacy and security without the need for a bank, a feature that is important to the Mazacoin team, just like it is paramount to other cryptocurrency organizations.

As opposed to the more centralized monetary policy of the Bangla-Pesa, which essentially bases supply on real labor, Mazacoin uses the “mining” protocol of Bitcoin. Some users equip their computers to solve codes that are necessary for the upkeep of Mazacoin’s digital ledger and payment system. When the computers solve the codes, the users—or “miners”—are rewarded with Mazacoins for their service. They can then spend Mazacoins into the economy.

Unlike Bitcoin, however, Payu and his team have “premined” 20 million coins to be held in a trust by the future Mazacoin Development Foundation, on behalf of the Oglala Sioux tribe. The trust is essentially a digital sovereign wealth fund, the value of which will be determined by the future performance of Mazacoin on the reservation, with neighboring retailers, and in investment on the cryptocurrency markets. Additionally, the coins in the trust can be used for price stabilization and distribution. The legal details of the trust are a bit murky; it is unclear how the coins would be allocated and how much of a share the Mazacoin development team might get.

Although Mazacoin isn’t worth much now, the founder’s hopes spring eternal. Perhaps most importantly, if Mazacoin ever does take off, the funds in the trust might be exempt from U.S. taxation. If retailers that now accept Bitcoin, like Overstock.com and Dell, ever accept Mazacoin, buyers could pay a lower tax rate to the Oglala Sioux than they would to the U.S. government. Although U.S. regulators would likely wade in with respect to nontribal transactions, there is potentially enormous upside.

This is all quite complicated. On a fundamental level, a digital cryptocurrency isn’t as easy to comprehend as a paper voucher. For better or worse, many people on the reservation, including tribal officials, are understandably hesitant to embrace the idea. A Mashable documentary from last fall depicts some of the tension between Harris and residents on the reservation. Although the permission to create the currency doesn't seem to be an issue, trust is, and in addition to the confidence of the public, Harris and his team need legal recognition from the tribal government if Mazacoin is indeed to take on aspects of a sovereign currency. Recently, however, Harris has indicated that he is working closely and productively with tribal officials.

Regardless of whether Mazacoin succeeds in its ostensible goal to become the crux of a new economy for Pine Ridge, or merely becomes a source of speculation and individual profit-seeking, it’s difficult not to see economic self-determination as a worthy goal. The reservation is in a perpetual depression. That it should have the ability to create financial wealth for its own people, especially when the United States isn’t exactly flooding the badlands with greenbacks, seems a tenet of fundamental justice.

Innovation vs. inequality

In their own different ways, The Brixton Pound, Koru Kenya, and Mazacoin are all attempting to achieve a common goal: empowering people in a monetarily unequal world, from the bottom up. In an age when governments and banks aren’t always the best stewards of communities’ financial growth, security, or privacy, people deserve the ability to provide for themselves. Collaborative innovations around the world, especially within impoverished communities of color, show reasons for cautious optimism. Most alternative currency projects are not indexed to murder and mayhem.

Alternative currencies have limited scope. Because they’re not issued by powerful governments, their abilities are inherently narrowed. Perhaps, in an ideal world, through either regulation or direct provisioning, sovereign governments and their agents would guarantee their people enough money to live apart from financial predators, support their own neighborhoods, participate in commerce, and maintain basic dignity.

But meanwhile, some brave people are pointing new ways forward and creating pressure from below. There will always be mistakes and mishaps. There will always be greedy pirates. But there are also people trying to create new treasure and put it in the hands of those who don’t have enough.

Correction: This article originally claimed, incorrectly, that the Brixton Pound could not be exchanged for pounds sterling. The text has been corrected.

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Raúl Carrillo wrote this article for YES! Magazine. Raúl is a student at Columbia Law and a graduate of Harvard College. He is a co-organizer for The Modern Money Network (MMN), an interdisciplinary educational initiative for understanding money, finance, law, and the economy. Follow him at @ramencents.